A simple, guaranteed return product

Go for POS Saral Nivesh only if you want guaranteed returns; others should use a combination of term insurance and PPF/equity MFs

The country's first, and perhaps, the simplest life insurance product that can be bought at a point of sale (POS) terminal has finally been launched. Edelweiss Tokio Life Insurance has recently launched POS Saral Nivesh — the first product to be approved under the Insurance Regulatory and Development Authority of India's (Irdai’s) guidelines on POS-life insurance products.

POS Saral Nivesh is a nonlinked, non-participating endowment life insurance plan, which offers both protection and savings. The benefits are guaranteed and are payable in case of maturity or death, whichever is earlier. The sum assured ranges from ~50,000 to ~10 lakh. Customers can choose any sum assured in between in multiples of ~10,000. The policy tenure ranges from 10 to 20 years. Premium payment terms are five, seven, 10 and 12 years.

An important aspect of this product is its simplicity. "The key condition that Irdai has laid down in its guidelines is that the product should be simple to buy and simple to understand. The customer needs to know only three things before he decides to buy the product: How much money will he need to fulfil his goal? After how many years will he need the money? And how long can he pay for it?" says Subhrajit Mukhopadhyay, chief and appointed actuary, Edelweiss Tokio Life Insurance. "There is no ambiguity about the product. Everything is stated upfront."

The product is also simple to buy. "Along with the verifications, the product can be accepted within 20 minutes. We decide immediately whether to accept or reject the proposal," says Mukhopadhyay. In a normal endowment product, customers have to sometimes undergo medical check-ups. They also have to answer a detailed questionnaire on their medical condition. Here, only four questions about medical condition have to be answered.

The policy comes with a waiting period of 90 days. If anything happens during this period, barring an accidental death, the premium is not paid.

On the positive side, the product is simple and easy to understand, and also easy to purchase. It also offers a guaranteed return. However, its main shortcoming is the rate of return. "While the return is guaranteed and the product offers life cover as well, one must consider whether the return is reasonable. The benefit illustration indicates a return of close to five per cent," says Arvind Laddha, deputy chief executive officer, JLT Independent Insurance Brokers. According to him, while the return may seem low, it must be remembered that it is tax-free and the product is for 10-20 years, during which period the returns from other savings products are likely to come down. "Customers looking for a safe, guaranteed return life insurance product may go for it. It is suited for those who are relatively riskaverse and are in the initial stages of building their investment and insurance portfolio," says Laddha.